4 Takeaways from the November BOJ Statement

After surprising the forex market with an easing announcement in their previous rate statement, BOJ policymakers decided to take it easy this time. Here’s what Governor Kuroda and his men had to say and what it could mean for yen price action moving forward.

1. Increased support for monetary easing

While the BOJ’s decision to step up its stimulus efforts last month came down to the wire with a 5-4 vote, their agreement to ease at an annual pace of 80 trillion JPY this time was close to unanimous at 8-1. The only dissenter, Takahide Kiuchi, maintained that the current monetary base is already appropriate.

For majority of the policymakers, the recent GDP contraction that put the Japan back in recession was a wake-up call to take aggressive action. However, they still believe that the economy continues to recover moderately and that the negative effect of the April sales tax hike is starting to fade.

2. Kuroda stays hopeful about the economy

BOJ officials also had an improved outlook for output, as the central bank mentioned that exports have been more or less flat. This is a relatively upbeat assessment compared to their previous statement saying that exports were weakening.

“Companies are maintaining their upbeat investment stance against the background of robust profits,” Kuroda added. “A positive mechanism of income and expenditure remains in place for both households and companies.”

3. Open-ended QE to carry on until inflation reaches target

As for inflation, BOJ policymakers acknowledged that price pressures are still weakening and that their latest easing decision is geared at bringing annual CPI closer to target. For now, officials admitted that there’s a strong chance that core CPI would fall below 1% in the near term.

With that, they also emphasized that price stability is the central bank’s mandate and that they are willing to channel their efforts into stoking inflation. Some forex market watchers interpreted this to mean that additional stimulus is still a possibility if price levels keep declining later on.

4. No need to delay next sales tax hike?

Governor Kuroda doesn’t seem to agree with Prime Minister Abe’s decision to delay the next sales tax hike in order to give the consumer sector time to recover and contribute more to overall economic growth.

“I understand that whether to raise the sales tax is something the government and parliament decides, taking into account economic and other conditions. Speaking in general terms, it’s important for Japan as a nation to maintain market trust in its finances,” explained the BOJ head. After all, the country’s public deficit continues to grow and the government could use another sales tax increase to shore up its finances.

At the end of the day though, Kuroda clarified that it is still up to the parliament and government to decide on the sales tax while the central bank remains focused on price stability. In a nutshell, the latest BOJ statement seemed leave mixed impressions, as most policymakers acknowledged the need for monetary stimulus while keeping their hopes up that the economy could soon recover.